Re: 2009 Year-end Tax Planning - Individuals

Dear Client:

Our office knows that 2009 has been a difficult year for many of our clients due to the economic downturn.
Although there are signs of recovery, it is expected that a full recovery is still some years away. You may be
surprised to learn that the Tax Code could help ease the impact of the recession on your individual tax liability.
Our office can help you plan a year-end tax strategy that incorporates many of the traditional "tried and true"
strategies as well as some newer ones tied to recent legislation to help minimize your tax liability.

Income shifting. The traditional year-end strategy of income shifting is still valuable this year but there is a
twist. Under this strategy, you time your income and deductions so that your taxable income is about even for
2009 and 2010 so your tax bracket remains the same. If you anticipate being in a higher tax bracket for 2010,
you may want to accelerate income into 2009 and defer deductions into 2010. Income can be delayed through
setting up deferred compensation arrangements, postponing year-end bonuses, maximizing deductible retirement
contributions, and delaying year-end billings. The twist is the uncertain future of the individual marginal income
tax rates. Currently, the top two rates are 33 percent and 35 percent but they are temporary and will expire
after December 31, 2010. The Obama administration has proposed reinstating the 36 percent and 39.6 percent
rates for higher-income taxpayers. Congress could allow the higher returns to return after 2010 or make the
higher rates retroactive to January 1, 2010. Our office will keep you posted on developments.

AMT. Another planning complication is the alternative minimum tax (AMT). As you know, the AMT was
intended to ensure that very wealthy individuals did not evade taxation. Because the AMT was not indexed for
inflation, and for other reasons, the AMT today encroaches on many moderate-income taxpayers, especially
two-income married couples. Now is an opportune time to compute if you will be subject to the AMT for 2009
or 2010. Our office can explore whether certain deductions should be more evenly divided between 2009 and
2010 and whether certain deductions will qualify, or will not be as valuable, for AMT purposes. Congress is also
expected to extend to 2010 a temporary AMT "patch" that insulates many moderate-income taxpayers from the
AMT.

Gains and losses. Our office can also help you time the recognition of capital gains and losses to minimize net
capital gains tax and maximize deductible capital losses. The process involves determining short term gains,
long-term gains, short-term losses, and long-term losses, among other items, and then determining how you
might vary the mix before year-end to maximize existing losses and minimize existing gains. Many investors
have excess capital losses from 2008 that they may now "carry over" to offset capital gains that would
otherwise be taxable. We can help you coordinate your year-end trades with these computations.

Life changes. Marriage, divorce, the birth of a child, death, a change in job or loss of a job, and retirement are
just some of the life events that trigger a special urgency for year-end tax planning. If you have had a life
change, please contact our office so we can review how that change will impact your federal tax liability. After
December 31, 2009, it will be too late to alter most of your bottom-line tax liability for 2009.

First-time homebuyer credit. A taxpayer who is a first-time homebuyer of a principal residence may claim a
refundable credit equal to 10 percent of the purchase price of the residence (with a maximum credit of $8,000
($4,000 for married couples filing separately)). The Worker, Homeownership and Business Assistance Act of
2009, signed into law on November 6, extends the credit for qualified taxpayers purchasing principal residences
on or before April 30, 2010. If a taxpayer enters into a binding contract before May 1, 2010, to close on the
purchase of a principal residence before July 1, 2010, the new law treats the credit as not expiring until July 1,
2010.

The new law also expands the credit to "long-time homeowners" who are buying replacement property but at a
reduced amount of the credit. Individuals who have owned and used the same residence as their principal
residence for any five consecutive year period during the eight year period ending on the date of the purchase of
a subsequent principal residence may be eligible for a reduced credit of $6,500 ($3,250 for married couples filing
separately).

Congress has also made the credit available to more individuals by increasing the modified adjusted gross
income (MAGI) phaseouts for the credit. For purchases made after November 6, 2009, the credit begins to
phase out for individuals with MAGI between $125,000 and $145,000, and for married couples filing joint returns
with MAGI between $225,000 and $245,000.

Making Work Pay Credit. Many individuals are seeing a little more in their paychecks because of the Making
Work Pay Credit. However, some taxpayers may be surprised to find that their refunds will be lower than
expected next year or that they may owe tax. Our office can check your withholding allowances. You may
need to file a new Form W-4 with your employer if you do not want the Making Work Pay Credit to reduce
your withholding more than the amount of the credit. For example, our office has been contacted by individuals
with more than one job, who have discovered that both employers are reducing withholding for the credit.
Married taxpayers whose combined income places them in a higher tax bracket may also want to file a new
Form W-4. The credit may also impact your tax liability if you are self-employed or receiving a pension. Please
contact our office for details.

Green incentives. When considering home improvements, do not forget a variety of federal tax incentives that
can help you save money. One of the more popular tax breaks is the residential energy property credit. The
credit is 30 percent of the sum of expenditures for qualified energy efficiency improvements, including windows,
furnaces, water heaters, heat pumps, and more, which are placed in service in 2009 and 2010. The credit is
limited to $1,500 for 2009 and 2010. The improvement must meet strict energy efficiency standards. If it does
not, you cannot claim a credit. This is a common error and it can be a costly one. Our office can review your
planned purchase and make sure you will qualify for this valuable incentive.

The Tax Code also rewards taxpayers who purchase "green" vehicles, such as hybrid vehicles and soon to be
available plug-in electric drive vehicles. As with home improvements, the vehicle must meet certain energy
efficiency standards. The IRS has certified the eligibility of many hybrid vehicles for the alternative vehicle tax
credit. Additionally, the alternative motor vehicle credit is now treated as a nonrefundable personal tax credit.
This means that it can be used to offset regular tax liability and AMT liability the same as other nonrefundable
personal credits to the extent allowed. Do not forget, also, that as a bonus for purchasing any new vehicle by the
end of 2009, you may deduct the sales tax that you pay on up to $49,500 of the purchase price, depending on the
amount of your adjusted gross income.

Military personnel. Individuals serving in the U.S. armed forces are eligible for a variety of tax incentives. For
example, the Worker, Homeownership and Business Assistance Act extends the homebuyer credit for members
of the U.S. uniformed services, Foreign Service, and intelligence community on qualified official extended duty
outside the U.S. to purchases made before May 1, 2011 (or July 1, 2011 for taxpayers with binding contracts).
Additionally, there are special taxpayer-friendly rules for certain distributions from retirement accounts and for
the treatment of differential pay. These provisions may be overlooked because they are not as well known as
others. If you, a family member or friend is serving in the armed forces, please contact our office for a complete
review of all the tax incentives for service personnel.

Disaster losses. The Tax Code provides significant help after a natural disaster, such as a tornado, fire or
hurricane. Last year, Congress extended some generous tax incentives to victims of all federally-declared
natural disasters that occur before January 1, 2010. These impact how you can claim a casualty loss, expense
qualified disaster expenditures, and more. In our area, many individuals are recovering from [insert federally-
declared natural disaster here, for example, California wild fires] . These special tax provisions could help
you.

Please contact our office if you have any questions about any of the provisions we discussed in this letter or any
other questions about year-end tax planning.

Sincerely yours,